Center On Executive Compensation

Missing the Mark on Your ESG Goal? Five Steps to Communicate Progress

Employers are evaluating communication strategies for well-intended ESG goals that may now seem unachievable.  A piece from Latham & Watkins offers a playbook to reflect on the status of the goals and suggests the use of “strategic transparency” to communicate progress and address obstacles encountered along the way.

1.    Understand current and proposed legal requirements. Mandatory disclosure is popping up across the globe – from the EU’s Corporate Sustainability Reporting Directive to the SEC’s final climate rule, companies are expected to report on their incremental progress towards goals – even voluntary goals. Determining what to reveal going forward requires an understanding of the scope of these requirements.

2.    Assess “materiality.” While voluntary goals may not be subject to federal securities laws, Latham & Watkins urges a conservative approach to assessing materiality because the SEC is interested in how ESG topics relate to the business. Some key questions to consider if the goal has a material impact on financials:

  • Are investors inquiring about progress towards the goal?
  • Do executives regularly speak publicly about the goal?
  • Have you included your commitments in filings or investor presentations?
  • Is the achievement of the goal expected to impact financial results?

3.    Consider internal messaging. Understand what has been previously communicated internally around goal progress and determine if additional information should be shared. If the board has been made aware that a goal will likely not be met, your securities counsel and investor relations should be notified.

4.    Review all communications holistically. Examine how the goal progress has been disseminated from each angle in order to assess if course corrections are necessary. 

5.    Use “strategic transparency” to discuss the challenges in goal attainment. This involves balancing vulnerability with optimism in speaking about the desired outcome. Some useful pointers for getting this right:

  • Highlight complexities associated with the goal – which may include issues within management’s control, but not necessarily within “eyesight” when the goal was established. Reiterate the company’s commitment to achieving the goal.

  • Assess elements outside the company’s control that impacted progress only if they have a direct bearing to missing the goal. 

  • Examine risk disclosure. A company’s capacity to fulfill its commitments to investors is paramount, so it is important to consistently evaluate risks and convey the realistic possibility of accomplishing set goals.

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Authors: Megan Wolf



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